Volkswagen Act

The Volkswagen Act is a set of German federal laws enacted in 1960, regulating the privatization of Volkswagenwerk GmbH into Volkswagen AG.[1] In order to maintain government control in the privately owned company, it stipulated that the votings on major shareholder meeting resolutions require 4/5th(80%) agreement.[2] This part of the law was deemed to violate the "free movement of capital" principle of European company law by EU members.[3] After a series of challenges by EU from 2007 to 2013, the German parliament finally amended the part in 2013 to EU court satisfaction.[4]

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The full title of the law is "Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand", usually abbreviated to "VW-Gesetz". It was enacted on 28 July 1960, when Volkswagenwerk GmbH was privatized. The state of Lower Saxony held a voting share of 20.2 percent, which gave it the ability to veto major decisions and prevent takeovers by other shareholders, regardless of the extent of the ownership. It also allowed the government of Lower Saxony to appoint two members to Volkswagen's board.

In October 2007, the European Court of Justice ruled that the VW law was illegal in EU[5] because it was protectionist. At that time, Porsche held 30.9% of VW shares and there had been speculation that Porsche would be interested in taking over VW if the law did not stand in its way. The court also prevented the government appointing Volkswagen board members.[6]

In 2008, the German government then rewrote the Volkswagen law, attempting to sidestep the ECJ judgment; removing restrictions on share ownership but still requiring an 80% majority for important decisions, so Lower Saxony would still be able to block major business decisions and takeovers.[7] European regulators took the German government to court again[8][9] and requested a fine of €31,114 per day backdated to when the law was declared illegal in 2007, plus larger ongoing fines from the date of a second court judgment. In March 2012, the German government insisted that it would defend the Volkswagen Law.[10]

In October 2013, the EU Court of Justice in Luxembourg ruled that the redraft of the Volkswagen law “complied in full” with EU rules, bringing "the matter to a close,” as Chantal Hughes, spokeswoman for EU Internal Markets Commissioner Michel Barnier said.[11]

During the above developments, Porsche, which traditionally had close relationships with Volkswagen, increased its holding of Volkswagen AG shares as follows (please see Porsche#EU and the Volkswagen Law for details):

Porsche had many difficulties financing the large investment, and agreed in August 2009 to sell its automobile manufacturing business to Volkswagen AG,[15] while retaining the majority ownership in Volkswagen. Porsche SE officially became the controlling owner of Volkswagen AG when Volkswagen Law was amended to abolish the 20% owner veto rights in 2013, with 50.76% ownership.[11] Please see the Porsche article for details.